Can voluntary overtime be required to be included in holiday pay?

3 important questions to ask…

Many business owners may naturally think that payments for voluntary overtime, as opposed to required overtime, don’t need to be included in holiday pay. However, a recent case that went to the Employment Appeal Tribunal has now determined that some voluntary overtime, that was done regularly enough and over a sufficient time period can be considered as part of ‘normal pay’ and should therefore be included in the holiday pay calculation.

Our advice, based on this case and other recent court decisions, is to carry out an assessment in relation to each of your employees and ask these 3 questions:

1. Are the payments sufficiently regular and have they been paid for a sufficient period of time to be considered ‘normal pay’ for the employee?

In the case of Dudley Metropolitan Borough Council v Willetts, mentioned above, payments that were made once a month or for one week in five over a number of years were considered to be ‘normal pay’. On the other hand, voluntary overtime that was worked on rare occasions was not ‘normal pay’.

2. If the payments are not included in holiday pay does this mean that the employee suffers a disadvantage when taking holiday?

Using the same case example, once the employees had committed themselves to doing the work, they then had an expectation that they would receive some payments on a regular basis.

Accordingly, if those regular payments are not included in holiday pay, the employees would receive less pay when taking holiday than they normally received when working. If this acts as a deterrent from taking their holiday, it is not acceptable.

3. Is there an ‘intrinsic link’ between the additional work done and the work required to be carried out under the contract of employment?

There was an ‘intrinsic link’ in this case because: (a) without the contract of employment there would be no arrangement for voluntary work; (b) the maintenance and repair tasks they performed under the contracts of employment were the same maintenance and repair tasks they did on-call and when carrying out the additional work; and (c) once they committed to doing the additional work, they were no different from an employee who was required under their contract to do the additional work.

As with other recent cases on holiday pay, whilst this case gives us a decision in principle, the devil is in the detail and there are many unanswered questions which need to be addressed before an employer can confidently calculate holiday pay.

It does, however, feel as though this trend of including additional elements, such as regular overtime and commission, in the calculation of holiday pay may well be here to stay, especially where it is clear that these payments form part of ‘normal pay’ and they are not compensated for elsewhere.

It’s yet another tricky and grey area. If you require advice on this feel free to get in touch with one of our qualified HR consultants on 0333 444 0165.